[Federal Register Volume 61, Number 216 (Wednesday, November 6, 1996)]
[Notices]
[Pages 57498-57499]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28516]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22307; 812-10380]


International Series Release No. 1025, Osmanli Bankasi A.S., 
Turkiye Garanti Bankasi A.S.; Notice of Application

October 31, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: Osmanli Bankasi A.S. (``Ottoman Bank'') and Turkiye Garanti 
Bankasi A.S. (``Garanti Bank'').

RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
that would exempt applicants from section 17(f) of the Act.

SUMMARY OF APPLICATION: Applicants request an order permitting Ottoman 
Bank to act as custodian in the Republic of Turkey for registered 
investment companies.

FILING DATE: The application was filed on October 3, 1996 and amended 
on October 24, 1996.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on November 25, 
1996, and should be accompanied by proof of service on applicants, in 
the form of an affidavit, or for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, Ottoman Bank, Bankalar Caddesi No. 35-37, 8000 
Karakoy, Istanbul, Turkey, Garanti Bank, 63 Buyukdere Caddesi, Maslak 
80670, Istanbul, Turkey; c/o Thomas W. Christopher, White & Case, 1155 
Avenue of the Americas, New York, NY 10036-2787.

FOR FURTHER INFORMATION CONTACT:
Kathleen L. Knisely, Law Clerk, at (202) 942-0517, or Mary Kay Frech, 
Branch Chief, at (202) 942-0564 (Division of Investment Management, 
Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicants' Representations

    1. Garanti Bank is a Turkish banking institution, which is 
supervised and regulated by banking authorities in Turkey and other 
countries in which it maintains offices. In Turkey, Garanti Bank is 
subject to comprehensive supervision by Turkish banking regulators, 
including the Ministry of State in Charge of the Treasury, the 
Undersecretariat of the Treasury, the Capital Markets Board, the 
Istanbul Stock Exchange, and the Ministry of Finance, all of which are 
agencies of the government of Turkey. Garanti Bank has approximately 
160 branches in Turkey and seven foreign offices and branches. As of 
June 30, 1996, Garanti Bank had total assets of approximately $3.08 
billion, and shareholders' equity of approximately $395.4 million 
(excluding minority interests).
    2. Ottoman Bank is a Turkish banking organization. It is regulated 
by the Ministry of State in Charge of the Treasury, the 
Undersecretariat of the Treasury, the Capital Markets Board, the 
Istanbul Stock Exchange, and the Ministry of Finance.\1\ As of June 30, 
1996, Ottoman Bank had total assets of approximately $450 million and 
shareholders' equity of approximately $97 million.
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    \1\ Under a prior SEC order, Ottoman Bank has been acting as a 
subcustodian of investment company assets for which Bankers Trust 
Company, N.A. act as custodian. See Bankers Trust Company, N.A., 
Investment Company Act Release Nos. 18046 (Mar. 14, 1991) (notice) 
and 18085 (Apr. 9, 1991) (order).
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    3. Ottoman Bank is an indirect subsidiary of Garanti Bank. Garanti 
Bank indirectly acquired Ottoman Bank in a transaction that closed on 
June 25, 1996 (the ``Transaction''). The Transaction resulted in an 
indirect subsidiary of Garanti Bank, Clover Investments Co. Ltd., 
incorporated in Malta, owning 100% of the equity securities of 
Compagnie Ottomane d'Investissements BV, a Dutch company, which owns 
99.9% of the equity securities of Ottoman Bank.\2\
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    \2\ Prior to this Transaction, Ottoman Bank was controlled by 
Banque Paribas, a French banking organization. Under a prior SEC 
order, Ottoman Bank has been acting as a subcustodian of investment 
company assets in partial reliance upon the guarantee of Banque 
Paribus. See Banque Paribus and Ottoman Bank, A.S., Investment 
Company Act Release Nos. 20663 (Oct. 27, 1994) (notice) and 20722 
(Nov. 21, 1994) (order). As a result of the Transaction, Banque 
Paribus has indicated that it intends to terminate its guarantee as 
of December 31, 1996. Banque Paribus' planned termination has 
necessitated the requested order.
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    4. Applicants request an order to permit Ottoman Bank to act as 
custodian of securities and other assets (``Securities'') of investment 
companies registered under the Act, other than those registered under 
section 7(d) of the Act (``Investment Companies''), or as subcustodian 
of such Securities as to which any other entity is acting as custodian, 
to accept deposits, or to cause or permit the acceptance of deposits, 
of such Securities in the Republic of Turkey. As used herein, the term 
``Securities'' does not include securities issued by the United States 
Government, any state or political subdivision thereof, or by any 
agency thereof, or any securities issued by any entity organized under 
the laws of the United States or any state thereof (other than 
certificates of deposit, evidence of indebtedness, and other 
securities, issued or guaranteed by such entity that have been issued 
and sold outside the United States).
    5. Ottoman Bank would accept deposits from Investment Companies

[[Page 57499]]

only in accordance with a three-party agreement (the ``Agreement''). 
The Agreement would be entered into by (a) an Investment Company or 
custodian of the Securities of an Investment Company for which Ottoman 
Bank acts as a subcustodian, (b) Ottoman Bank, and (c) Garanti Bank. 
The Agreement would provide that Ottoman Bank would act as a custodian 
or subcustodian, and Garanti Bank would guarantee the Securities 
against loss while such Securities were in the custody of Ottoman Bank, 
except such loss resulting from political risk (e.g., exchange control 
restrictions, confiscation, expropriation, nationalization, 
insurrection, civil strife, or armed hostilities) and other risk of 
loss (excluding bankruptcy or insolvency of Ottoman Bank) for which 
neither Garanti Bank nor Ottoman Bank would be liable (e.g., despite 
the exercise of reasonable care, loss due to acts of God or nuclear 
incident).

Applicants' Legal Analysis

    1. Section 17(f) of the Act requires every registered management 
investment company to place and maintain its securities and similar 
investments in the custody of certain enumerated entities, including a 
bank or banks meeting the requirements of section 26(a) of the Act, a 
member firm of a national securities exchange, the investment company 
itself, or a system for the central handling of securities established 
by a national securities exchange. Section 2(a)(5) of the Act defines 
``bank'' to include banking institutions organized under the laws of 
the United States, member banks of the Federal Reserve System, and 
certain banking institutions or trust companies doing business under 
the laws of any state or of the United States. Ottoman Bank does not 
fall within the definition of ``bank'' as defined in the Act and, under 
section 17(f), may not act as custodian for registered investment 
companies.
    2. Rule 17f-5 expands the group of entities that are permitted to 
serve as foreign custodians. Rule 17f-5 defines the term ``Eligible 
Foreign Custodian'' to include a banking institution or trust company 
incorporated or organized under the laws of a country other than the 
United States, that is regulated as such by that country's government 
or an agency thereof, and that has shareholders' equity in excess of 
U.S. $200 million or its equivalent.
    3. Garanti Bank qualifies as an eligible foreign custodian under 
rule 17f-5. Ottoman Bank satisfies the requirements of rule 17f-5 
insofar as it is a banking institution organized under the laws of 
Turkey and is regulated by agencies of the government of Turkey. 
Ottoman Bank, however, does not meet the minimum shareholders' equity 
requirement of the rule. Accordingly, Ottoman is not an eligible 
foreign custodian under the rule and, absent exemptive relief, could 
not serve as a custodian for the Securities of United States Investment 
Companies.
    4. Section 6(c) provides, in relevant part, that the SEC, by order, 
may exempt any person from any provision of the Act or from any rule 
thereunder, if such exemption is necessary or appropriate in the public 
interest, consistent with the protection of investors and consistent 
with purposes fairly intended by the policy and provisions of the Act. 
Applicants believe that their request satisfies this standard.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. The foreign custody arrangements with Ottoman Bank will comply 
with provisions of rule 17f-5 in all respects, except those relating to 
the minimum shareholders' equity requirements of eligible foreign 
custodians.
    2. An Investment Company or a custodian for an Investment Company 
will deposit Securities with Ottoman Bank only in accordance with a 
three-party contractual agreement that will remain in effect at all 
times during which Ottoman Bank fails to meet the requirement of the 
rule 17f-5 relating to minimum shareholders' equity. Each agreement 
will be a three-party agreement among (a) Garanti Bank, (b) Ottoman 
Bank, and (c) the Investment Company or custodian of the Securities of 
the Investment Company. Under the agreement, Ottoman Bank will 
undertake to provide specified custodial or sub-custodial services. The 
agreement will further provide that Garanti Bank will be liable for any 
loss, damage, cost, expense, liability, or claim arising out of or in 
connection with the performance of Ottoman Bank of its responsibilities 
under the agreement to the same extent as if Garanti Bank had been 
required to provide custody services under such agreement.
    3. Garanti Bank currently satisfies and will continue to satisfy 
the minimum shareholders' equity requirement set forth in rule 17f-
5(c)(2)(i).

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-28516 Filed 11-5-96; 8:45 am]
BILLING CODE 8010-01-M